According to a South African electricity export, power utility Eskom will try to recover losses from corruption by further increasing tariffs levied on consumers.

Eskom is planning to recover losses from corruption and loopholes in the MYPD rules by further increasing your tariffs by an estimated 30% before the end of 2018.

In a parallel process, Municipalities are also adding their markup-up on the current 5% Eskom increase granted earlier this year, with some adding more than the recommended 6.84% suggested by Nersa, through an application process which ended on Tuesday, 20 March.

Public hearings for the municipal application process were abolished – a matter which has been taken up on behalf of the public by Ted Blom of Mining and Energy Advisors in correspondence with Nersa.

Nersa has invited the public to comment on Eskom’s request to increase tariffs to recover R66bn lost between 2014 and 2017 – the years included in the Public Protector’s “State of Capture Report”. Closing date for the comments is 23 March 2018.

Documents submitted by Eskom to the National Energy Regulator, Nersa, have shown a request for recovery of R66bn, due to Eskom’s over-estimation of electricity sales and overspend on coal, gas and imports from 2014 to 2016.

Despite massive corruption, inefficiencies and irregular expenditure, Eskom still shows a bottom line profit of over R20 billion before the RCA claims from 2013 to 2016.

2014 shows a net profit of R5,183bn (+R10bn RCA)

2015 shows R7,089bn (+R19.18bn RCA)

2016 shows R3.6bn (+R23.6bn RCA

2017 shows R4,617bn (+R23.8bn RCA)

Effectively, Eskom will never run at a loss as any shortfall is recovered through a flawed annual Regulatory Clearing Account (RCA) application.

In other words, Eskom recovers any shortfall in projections by increasing consumer’s tariffs the following year. This increase is over and above annual tariff increases.

Traditionally, once these RCA increases are added to electricity tariffs and the funds recovered, prices are not readjusted back to normal. This practice then resumes the following year as Eskom once again over-estimates their sales.

The defective MYPD rules also encourage Eskom to overspend – as overspending is, in most instances, completely recovered from the public via the same RCA provisions.

While a preliminary audit might find Eskom’s numbers are categorised under claimable headings, an independent audit to isolate the impact and quantum of thieving as identified in the public protector’s report has yet to be conducted.

Should the above prove to be true, the public is being asked to refund Eskom’s costs attributable to thieving by the “Zuptas.” Furthermore, it confirms NERSA has NOT been conducting oversight and Regulatory duties diligently.

If NERSA approves Eskom’s RCA application for 20114/15, 2015/16 and 2016/17, amounting to some R66bn, it will result in an electricity tariff hike of some 30%. And that will, in turn, result in further Enterprise closures, bankruptcies and job losses.

Thus the public will merely continue funding the Eskom gravy train and the effects will compound over time. Eventually, exchange rates will be affected as excessive electricity costs make SA increasingly uncompetitive to the point where exports will cease.

By Ted Blom, a partner at Mining & Energy Advisory.

Blom holds degrees in finance, law and mineral economics and consults widely to Top 40 Global Hedge & Private Equity Funds, as well as locally to emerging mining companies, utilities and finance houses.

He has built up a reputation for integrity and robust adherence to transparency and Corporate Governance.